Hey everyone and welcome to another weekly recap post for May 24, 2020. The world is going through a fundamental shift that will impact us all. Luckily I have some sound advice that may help get people through it.
Now for my disclaimer: this post contains affiliate links where the blog may receive a small commission on any sales from EQ Bank, Questrade and Tangerine.
The Great Debt Reckoning is Here
The world is facing a major debt crisis and has for years. Easy money policies from central banks around the world has pumped up the debt bubble to an astronomical size.
After a few token interest rate increases in 2018, the US Fed and Bank of Canada started to change course last Fall. Now there’s trouble.
The impact of shutting down entire economies is making this debt bubble a huge problem.
Now if you as a consumer have too much debt, what would be your solution to that problem?
I’m sure you’d want to pay some of it off so that you’d be in better financial shape.
Well government’s around the world in all their wisdom have decided that the solution to too much debt is to create more of it!
The US has printed trillions to fight the economic fallout from the Wuhan Flu. The Bank of Canada has added tens of billions too.
This will have profound consequences for the global economy going forward.
One of the scariest things I’ve ever heard was from Bank of Canada Governor Stephen Poloz who said:
“We are in an era where interest rates are probably going to stay low, for demographic reasons and economic growth reasons. I don’t know how low really but they’re just not going to be like where they were 20 years ago or 30 years ago.”
source Financial Post
So what Poloz is saying here is that we need to prepare for the Japanification of the Global Economy.
What do I mean by that? Look at Japans economy, it boomed in the 1980s, reached its peak by 1989 and crashed. It never recovered, today the stock market and real estate market are still down 50% from the 1980s high.
And there is no demand. Japan, like the West, is full of old people who don’t want real estate or stocks or much of anything really.
People Are Losing Confidence in Government
In democracies its always a favorite pastime to question and criticize our governments.
But I think the Coronavirus Pandemic has really exposed just how untrustworthy our governments really are.
First, we were told that the virus wasn’t a problem. Then it was a huge emergency. We were told don’t wear masks, now its basically law!
Governments have so thoroughly mismanaged this crisis that I think people’s distrust will start to spillover into the handling of the economic crisis caused by the pandemic.
After all, they couldn’t get their sh*t together on the pandemic. How in hell can they manage the economic fallout?
The Money Printing Has to Stop
After the Global Financial Crisis of 2008-2009, the public accepted that it was a once in a lifetime event that warranted an unprecedented stimulus package.
But since 2008, government’s have done nothing but print money and central banks’ balance sheets kept increasing.
The response to Covid-19 dwarfs the 08/09 response by trillions and trillions of dollars.
We saw a muted economic recovery with stagnant wages after 2008. The economy never really got back to normal and already central banks had to start propping up asset prices in the Fall of 2019.
So what will be the effect of this massive bailout? The more money they throw at the problem, the less effective it is.
That has some economists worried about a total economic collapse!
China, the US and the Great Game
The strategic rivalry between the US and China is starting to get out of hand and could even lead to war.
China has used the Covid chaos to crush the pro-democracy Hong Kong protests. And now it looks like the Chinese government will outright seize the quasi independent city-state and bring it under its control once and for all.
For decades now, the West has sold its soul in the hopes that China would turn towards democratic reforms.
Instead we made China rich and now we’re facing one of the most dangerous authoritarian states in history.
Its clear that China is using the global chaos for a straight up power grab in seizing Hong Kong.
The Chinese Government appears desperate to keep control as it faces internal challenges from Uyghurs, Hong Kong democracy protesters, and Tibetans; and external challenges from the US and its allies.
Where will all of this end? I’m thinking we could be on a path to war.
As governments around the world stumble into crisis after crisis they are dramatically increasing the likelihood of missteps, miscalculations and lots of unintended consequences.
What worries me is that we keep getting these so-called “once in a lifetime events.” So far we’ve had a financial crisis that nearly rivaled the Great Depression in 08-09 and a once in 100 years pandemic flu.
Are we headed for another major war?
What Does All this Mean for the Little Guy?
A big theme of this blog is financial security. I want my readers to take charge of their finances and grow stronger over time.
I have always maintained that people need more than just 1 source of income. As the pandemic has shown, things can happen quickly, out of the blue, and without warning. These crises can destroy us financially.
As we learned during the last recession of 2008-2009, jobs are not guaranteed income. So we need to diversify and build alternative streams of income. Start a blog and earn online income. Buy dividend stocks and ETFs for passive investment income. Buy cash flowing real estate.
Have some cash savings stashed away in a high interest bank account (See examples below). Own some precious metals like gold and silver. But most importantly don’t take on too much debt and always pay a little extra down on it.
Having a few sources of income, having savings and investments, having manageable debt levels, and diversifying through it all, makes us stronger financially and more likely to survive and thrive throughout all of these crises. As each one of us grows stronger financially, it increases the strength of our financial system as a whole.
Save, Invest, Build Wealth and Prosper
In case you’re wondering here’s where I park my money and some financial services that I use:
For my Daily banking and no-fee cash back credit card I use Tangerine. Curious? Check out my Tangerine vs Simplii Financial review and the Tangerine Money Back Credit Card Review.
For my Savings I use the EQ Bank Savings Plus Account. Never heard of it? Click the link to check out my EQ Bank Savings Plus Account Review.
For investing I use a combination of TD Waterhouse (for legacy investments) and Questrade (low cost stock purchases and free ETF purchases). If you haven’t done so already, check out my Questrade Review to see why it’s the best deal around. Get $50 in Free Trades when you signup for Questrade through this link.